SWP Vs. IDCW

 

Systematic Withdrawal Plan (SWP) and Income Distribution cum Capital Withdrawal plan both are used for regular income from the mutual fund by the investors. But, SWP is more reliable tool for regular income compared to dividend option. In the dividend plan of an equity fund, both the amount and frequency of the dividend are not guaranteed, and it largely depends on market and the profit the AMC earns.

Moreover, SWP is more tax efficient than IDCW. SWP is the redemption of units from the scheme; hence the tax treatment of each withdrawal will be the same as that for equity oriented funds. For units holds for more than a year, a long term capital gains tax of 10% will be applicable for gains of over Rs. 1 lac. While for a holding period of less than a year, it is 15%. Long-term capital gains of up to Rs. 1 lakh in a financial year are tax free. In comparison, when one opt for a dividend plan he/she has to pay tax on dividend as per his/her tax slab, which could go up to 30%. If the dividend exceeds Rs. 5000 in a year, the fund house deduct 10% TDS.